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The peso's weakness reflects a deepening recession in Colombia and the need for Colombian businesses to obtain dollars to pay overseas debts. _____________________ ========================================= NEW YORK TIMES Tuesday, 29 June 1999 Colombia Devalues the Peso by 10 Percent ---------------------------------------- By Larry Rohter RIO DE JANEIRO, Brazil -- Hurt by a steep economic decline and speculative selling pressure on the peso, Colombia devalued its national currency by 10 percent in an emergency decree that took effect on Monday. The decision to ease the goverment-imposed exchange-rate limits on the peso was made following an emergency meeting of the central bank late Sunday night. The peso initially tumbled 2.9 percent on Monday in reaction to the change, rebounding later to close at 1,743 to the dollar, about 0.7 percent weaker than its rate late Friday. But there are widespread expectations that the currency will continue to weaken. Colombia's move to devalue the peso was not unexpected, since the currency has been under heavy selling pressure in recent weeks. The government spent $275 million of its $8.5 billion in foreign exchange reserves Thursday and Friday to defend the the peso's value in the foreign-exchange market by purchasing pesos and reducing the supply in circulation. The peso's weakness reflects a deepening recession in Colombia and the need for Colombian businesses to obtain dollars to pay overseas debts. Earlier this month, both Standard & Poor's and Moody's Investors Service put Colombia's credit rating on review, in what was seen as a preliminary step to a likely downgrade to below investment-grade. Colombia historically has recorded fairly steady economic growth partly because of robust exports of coffee and oil, as well as the cushion provided by illegal earnings from drug trafficking. But the Colombian economy contracted by nearly 5 percent in the first quarter of this year, a record decline that followed a 3.1 percent shrinkage during the final quarter of 1998. The increasing strength of both the left-wing guerrillas who have been fighting the government for more than 30 years and right-wing paramilitary groups has also weakened the economy and made foreign investors nervous. Foreign investment in Colombia's three main stock markets had dropped to $718 million by May of this year, compared to $1.1 billion a year earlier. "We are confident and calm that the market will accept this," Colombia's minister of finance, Juan Camilo Restrepo, said in announcing the devaluation measures at a news conference late Sunday night. "It will be seen that there are serious, coherent policies behind this move, and fiscal targets which are being met." But on Monday, market analysts largely disagreed. They said the government would have been better off abandoning the system of artificial limits on exchange rates altogether in favor of letting the peso rise and fall based on supply and demand. Copyright 1999 The New York Times Company |
